A ten-billion-dollar kickback is something in America these days is likely to be considered a mere trifle in the face of a multi-trillion black hole in the system. For Kazakhstan, the country's largest bank's misappropriation's costs are an open wound in the population's households that will keep bleeding for years to come. The key to the issue is the man who holds the dagger and his name is Mukhtar Ablyazov, now huddling up in the plush of London Town with the likes of his fellow embezzler Boris Berezovsky. Will he end up as a Kazakh variant of the latter, or as a Kazakh Khodorkovsky?
Companies by names such as Best Catch Trading or Sandown Holding are not exactly eye-catchers in the world of corporate glamour - nor were they ever meant to be. The fact that they are located in remote eldorados like the Seychelles and the British Virgin Islands where they have no physical presence to speak of only illustrates their raison d'etre: camouflage puppets. The faces of those who hold the strings are usually very visible indeed - in contrast to their hands. In the case of the two aforementioned firms and a number of their peers, the man under question is Mukhtat Ablyazov.
A one-time man of confidence of Kazakhstan's President Nursultan Nazarbayev, who reached his summit of glory as minister of energy, industry and trade - a position which made him the most powerful man in the country holding its entire economy in the palm of his hand - in the late 1990s, Ablyazov for some reason decided to join the chorus of disgraced grumblers as of 2000. The now 49-year-old ex-minister who graduated as a physical engineer at the prestigious Baumann Academy in Moscow in the waning days of the Brezhnyev regime now finds himself in the charming company of ex-Soviet oligarchs on the run: swimming in cash but, at least for the moment, swimming against the tide. Berezovsky, also a one-time political clout-holder ending up as a would-be champion of private enterprise, is likely to appreciate his downtown London next-door neighbour a lot as such. The only things we have yet to wait for is Ablyazov - the book, followed by Ablyazov - the movie, after the book.
The trick put into practice by Ablyazov is well-known and seems to go back to early history. Under the Mesopotamian King Hammourabi, the first legislator known as such in human history, incoherence in account reporting was subject to capital punishment - but then, so was a slap in the face of one's parent. Such draconic measures can only be explained by the terrible mess the community was in by the time they were imposed upon it. After all, Stalin would never have imposed his terror on the community if the community would not have fallen into his hands like a ripe apple.
In more recent history, it was a Briton in the second half of the XIXth Century by the name of Jabez Balfour who was the perfect example of an entrepreneurial pretender by squeezing money out of private lenders' pockets under lavish return conditions. He managed to accumulate the then astronomic sum of 14 million Sterling with pretext as the only asset to speak of and no tangible assets, not even prospective ones, anywhere in sight. Of course, the house of cards collapsed in the end as it always will when for the victims it is too late. But Balfour escaped with a handsome fortune in his inside pocket to Chile - until that fateful day the British consul spotted him and had him extradited to Old England where he served a year behind bars for every million he had taken. After his term, he set up a fresh scheme under a different guise, but fortunately for everyone else died of a heart attack little later. Until his last breath, he maintained that he never did anything wrong and had been caught as a scapegoat for the Victorian business establishment to polish up the latter's own malpractices. Arguments put forward by the likes of Berezovsky and Ablyazov today sound like a perfect echo of it.
Balfour's scheme was copied decades later in America by a bubble-businessman called Ponzy whose name still stands for pyramid enterprise. He was caught in the end as well - only to make school for future generations. Among his most notorious followers is Roger Tamraz, a Lebanese banker with a Yale degree (so much for American high-brow education) who in the run-up of the Lebanese civil war stole a billion dollar in deposits of his Beirut-based IntraBank, which he "invested" in tropical shell firms in pretty much the same way Ablyazov did more recently. Soon the bubble was to burst as usual - but the most amazing thing is that towards the end of the civil war in the late 1980s he did it again under the bombs and shells with a new bank called Al Mashrek. Piquant detail: throughout his career, Tamraz was a loyal stringer of the CIA as well. In the case of Al Mashrek, Lebanese warlords were his main victims, which resulted in a narrow escape in summer 1989 after Tamraz claimed that there had been an attempt to kidnap him. The assumed kidnappers were the unlikely kind of Yasser Arafat's PLO.
Back to Ablyazov. As a state official, he was accused of having embezzled a handsome pair of billions from state companies including Kazakhstan's jewel in the crown, state company KEGOC. The allegations triggered his move to form an opposition party, dubbed Democratic Choice of Kazakhstan - probably in the hope that a seat in Parliament would offer him immunity from prosecution. The party was bullied by loyalists in Kazakhstan's political arena from the very beginning, which, unfortunately, gave Ablyazov enough ammunition to claim political martyrdom later.
After having been convicted to six years behind bars, he obtained amnesty within less than a year in jail. He had to promise to stay out of politics, and did so by leaving the country for Moscow, from where he consolidated his previous career's yield, before taking the helm of TuranAlem Bank. It can now be assumed, as investigators suspect, that he used part of the embezzled cash to buy into the bank and as the biggest single shareholder obtain the position of president. Soon after his establishment as chief banker, he started issuing loans to finance real estate projects downtown Moscow, Kiev, Odessa, Minsk and other post-Soviet uppity centres. He did so through the aforementioned kind of shell companies in tropical tax paradises. According to news reports, between 8 and 12 billion dollar, or about half of BTA's entire loan portfolio, was channeled out of the country in this manner. The shell companies now appear to be empty shells, and to whom the property belongs remains unclear to those who want to recover it.
The most stunning element in the scheme is how western banks could have fallen into the trap by granting loans to a Kazakh bank without clearly identifying the collateral, its location and its value. Where did this money come from in the first place? Creditors of BTA have a lot to answer for in this regard indeed, but none of the likes of the Royal Bank of Scotland, ING Barings, Credit Suisse and their peers seem eager to explain themselves. These upstream claimants have been very noisy on the issue of late, but downstream silence keeps prevailing. The truth of the matter is that in cases like this nobody really wants to know where the money came from to begin with. In the case of Tamraz, Edmond Naim, governor of the Banque du Liban, one day admitted in a conversation on the record with yours truly: "Dirty money? Quite possibly. In that case, the money has gone elsewhere and we are left with the dirt."
Mr. Ablyazov looks like an almost perfect clone of Roger Tamraz - except (presumably) for the CIA connection, and even there, who knows. Today, as we shall see in the next episode of this business western, he claims to have been the victim of state appropriation of private property within the framework of political oppression. On November 12, a London court of appeal confirmed the freezing of all assets belonging to Ablyazov and his associates.
Hopes are high for Ablyazov and other culprits that they could get away with most of what they have done thanks to the leniency of BTA's western creditors. "BTA, Kazakhstan's biggest bank, has agreed a deal with creditors who will write off $7.7bn in debt and interest owed as part of a wave of restructuring in the country's banking system," The Financial Times reported on December 9. "BTA and a committee of international creditors signed a term sheet on Monday setting out the principle commercial terms of its proposed financial restructuring. The creditors' committee includes ABN Amro, -Commerzbank, Standard Chartered, ING, KfW, and funds DE Shaw, and Fortis Investment Management. The plan will involve reducing BTA's total debt, principal and interest from $12.3bn to $4.6bn. In exchange lenders will get a choice of different packages of instruments to swap their claims into."
Hopes that not only what happened can come into the open but even part of the money stolen by Ablyazov and associates have been raised in the recent London court case. "London's High Court ruled today (12 November) to maintain a freezing order restricting the assets of BTA Bank's ex-chairman, Mukhtar Ablyazov, and other former managers," Debtwire, a British news service monitoring business-related court cases reported. "Court sessions held on the matter last week shed new light on BTA's old ownership structure and the evidence both sides will rely upon in the multi-billion-dollar fraud case that will follow the asset freeze decision. Presiding Mr Justice Teare ruled to continue the asset freeze, which was originally granted on 13 August, after considering the defence's arguments during hearings last week. The case is part of BTA Bank's broader attempt to recover billions of dollars that it says were misappropriated under its former management. The bank claims the fraudulent activities took place before BTA's nationalisation in February 2009 by Kazakhstan's sovereign wealth fund, Samruk-Kazyna."